Dollar higher against euro but pressures remain

LisaTwaronite

SAN FRANCISCO (MarketWatch) -- The dollar held onto its gains against the euro Thursday despite downbeat U.S. economic data, in what analysts said was a largely technical trading move rather than a reflection of fundamental factors.

But the greenback gained on the yen, as choppy stock trading decreased the appeal of carry trades, in which investors borrow lower-yielding currencies and invest them in higher-yielding assets.

"Carry trades struggled as North American equity markets failed to provide any new direction and the market continued to focus on month-end liquidity issues," wrote Matthew Strauss, senior currency strategist at RBC Capital Markets.

The dollar was buying 109.87 yen, down from 110.17 yen in late U.S. trading Wednesday.

The euro was at $1.4743, down from $1.4832 late Wednesday.

"As was the case yesterday, the moves reflect a chase for stops rather than a shift in fundamentals and should be viewed as a euro-buying opportunity," wrote analysts at Brown Brothers Harriman.

The dollar index, which measures the greenback against a basket of six major currencies, was at 75.640, up from 75.185 late Wednesday.

Currency markets largely shrugged off an upward revision to third-quarter gross domestic product. The Commerce Department said the U.S. economy expanded at its fastest pace in four years during the third quarter, growing at a real annual rate of 4.9%. See Economic Report.

"With a large upward revision to [third quarter] GDP already priced in, the greenback's reaction was muted as players see the number as solidly in the rearview mirror. The real concern is that [fourth quarter] GDP may come in below 1.0%, perhaps well below," wrote Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.

A spike in crude-oil prices, a drop in house prices and a rise in weekly jobless claims to near two-year highs made for choppy trading on Wall Street, which in turn raised risk aversion

Stocks opened lower Thursday, but major indexes later turned positive in volatile trading and then seesawed between positive and negative territory before closing with gains. See Market Snapshot.

Downbeat data

The Labor Department said continuing jobless claims rose by 112,000 in the week ending Nov. 17, to 2.66 million, the highest mark since Dec. 24, 2005. Initial jobless claims also shot up, rising by 23,000 to 352,000 during the week ending Nov. 24, to their highest level since Feb. 10. See Economic Report.

The "about-as-expected GDP print had little impact. The higher-than-expected initial jobless claims and a surge in continued claims has raised some eyebrows, however, where signs of a cracking labor market will likely ramp up recession expectations," wrote analysts at Action Economics.

The White House's official economic forecast released Thursday predicted a slowdown but not a recession. It projects growth will average 2.7% over the four quarters of next year. This is down from the previous forecast this summer of a 3.1% growth rate. See Economic Report.

Crude-oil futures rallied by as much as $4 a barrel overnight after a U.S.-Canadian pipeline explosion and shutdown, but they ended with just a slight gain Thursday after three of four pipelines were restarted. See Futures Movers.

Commerce Department data showed that new home sales rose 1.7% to a seasonally adjusted annual rate of 728,000 last month from a revised 716,000 in September, which was a 11-year low. But the October sales pace was weaker than the 740,000 derived in a survey of economists by MarketWatch. See Economic Report.

Because of sharp downward revisions in the prior three months, "sales undershot market expectations by a wide margin," wrote Sal Guatieri, of BMO Capital Markets Economics. "The 1.7% gain in the month is merely a dead cat bounce off the lowest level in a dozen years," he said.

A closely watched quarterly house price index dropped for the first time in 13 years. U.S. home prices were 0.4% lower in the third quarter than in the second, according to the house price index published Thursday by the Office of Federal Housing Enterprise Oversight.

Focus on BoE

The pound sterling was lower against the dollar Thursday, after remarks from Bank of England Governor Mervyn King. The pound was down about 0.8% at $2.0609.

The outlook for the U.K. economy has become more uncertain in recent weeks as risks to growth have increased and inflation pressures remain high, King said.

King and other members of the central bank's rate-setting panel told a parliamentary committee that there has been a softening of the global economy since the summer, with business confidence declining in the U.K. as the credit turmoil continues.

David Blanchflower, another member of the committee who has voted for a rate cut at the bank's last two meetings, said he believes there's a 50% chance of a recession in the U.S. in 2008, which would clearly have a knock-on effect in the U.K. See full story.

The BoE left interest rates unchanged at a six-year high of 5.75% earlier this month. The bank will meet to set rates next week on Dec. 5 and 6.

Yuan high

In China Thursday, the yuan finished at new high of 7.3824 to the dollar in local over-the-counter trading, up from 7.3945 Wednesday, according to XFN-Asia.

Currency forwards contracts -- instruments used by investors to bet on yuan gains -- are pricing on a nearly 10% appreciation of the yuan against the dollar over the next 12 months. But the yuan has fallen against the euro in line with the dollar's slump against the European unit.

A delegation headed by Jean-Claude Juncker, chairman of the Eurogroup of finance ministers, European Economic Affairs Commissioner Joaquin Almunia and European Central Bank President Jean-Claude Trichet was in Beijing Tuesday and Wednesday for talks with Chinese government officials. Despite their optimism that China will pick up the pace of yuan appreciation, analysts say the pace will likely remain gradual. See full story.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.